Byers & Ors v Saudi National Bank

Factual and Procedural Background

Company A, incorporated in The State and now in compulsory liquidation, owned shares in five companies incorporated in The Foreign State. Those shares were held on express trust by the Trustee for Company A. On or about 16 September 2009 the Trustee transferred the shares to Company C (a predecessor of Company B) in discharge of personal debts. The transfer was in breach of trust.

Under the lex situs (The Foreign State), registration of title in Company C’s name extinguished any equitable interest previously held by Company A. Proceedings have followed this path:

• 2013 – Company A and its joint liquidators (the “Appellants”) sued Company C under section 127 of the Insolvency Act 1986; the claim failed before the United Kingdom Supreme Court because the transfer was not a “disposition” (Akers v Samba).
• 2017 – New proceedings were issued in England alleging knowing receipt.
• 2020 – Because of disclosure defaults the High Court (Judge Fancourt) limited Company C’s defence and tried three issues: (1) effect of The Foreign State’s law; (2) whether a knowing-receipt claim fails absent a continuing equitable interest; (3) valuation. He answered (1) and (2) in Company C’s favour and dismissed the claim.
• 2022 – The Court of Appeal (Judges Newey, Asplin and Popplewell) upheld that dismissal.
• 2023 – The Supreme Court granted permission limited to the second issue. By the time of the hearing Company B had succeeded to Company C’s liabilities and stood as Respondent.

Legal Issues Presented

1. Whether liability for knowing receipt requires the claimant to retain a continuing equitable proprietary interest in the asset at the moment of the defendant’s receipt.
2. Consequently, whether Company B can be liable when, under the governing foreign law, the registration of the shares extinguished Company A’s equitable interest.

Arguments of the Parties

Appellants' Arguments

• A continuing equitable proprietary interest is not an essential element of knowing receipt; the tort is founded on the unconscionability of the receipt, not on title.
• El Ajou v Dollar Land sets out the three definitive elements of the tort and makes no reference to a proprietary base.
• The line of cases relied upon by the lower courts (e.g. Macmillan, Lightning, Courtwood) did not settle the point and, in any event, contain only obiter remarks.
• Requiring a proprietary base would encourage wrongdoers to exploit jurisdictions whose laws extinguish equitable interests, thereby undermining the protection equity affords to beneficiaries.

Respondent's Arguments

• Knowing receipt is a proprietary wrong analogous to the common-law tort of conversion; it necessarily depends on the claimant’s continuing equitable title.
• Macmillan v Bishopsgate (upheld on appeal) is authority that a claim fails when title is taken free of the claimant’s interest.
• Obiter dicta in Lightning, Courtwood, and comments by Judge Mance in Akers v Samba reinforce that proposition.
• Equity’s policy of protecting bona fide purchasers for value without notice would be undermined if after-acquired knowledge could revive a defeated equitable interest.

Table of Precedents Cited

Court's Reasoning and Analysis

Judge Burrows, delivering the opinion of the Supreme Court, analysed knowing receipt as follows:

1. Nature of the Wrong: Knowing receipt is a proprietary equitable wrong, the analogue of the tort of conversion. Liability arises only where the defendant knowingly interferes with a subsisting equitable proprietary right.
2. Requirement of Continuing Interest: Because the claimant’s equitable interest is the foundation of the wrong, it must still subsist at the moment of the defendant’s receipt or retention. If the relevant legal system vests the defendant with unencumbered title, the proprietary base disappears and no wrong is committed.
3. Case-Law Support: Macmillan (ratio), coupled with consistent obiter remarks in Lightning, Courtwood and dicta in Akers v Samba, aligns with this analysis. Conversely, authorities invoked by the Appellants (e.g., El Ajou, Haque v Raja) did not address the present point or were merely obiter.
4. Tracing and After-Acquired Knowledge: Equitable tracing (as explained in Foskett) likewise presupposes an existing equitable title; after-acquired knowledge cannot resuscitate title already defeated by a bona fide purchase.
5. Policy Considerations: The Court rejected arguments that the rule encourages forum-shopping by fraudsters; alternative remedies (e.g., dishonest assistance, criminal law) remain available.
6. Non-Trust Scenarios: Even where no express trust exists at the outset (e.g., misapplication of company assets by directors), courts treat the fiduciary as a constructive trustee pro tempore; the same proprietary-base requirement therefore applies.

Holding and Implications

APPEAL DISMISSED.

The Supreme Court holds that a claim in knowing receipt fails where the claimant’s equitable interest is extinguished before or at the moment of the defendant’s receipt. Because The Foreign State’s law vested Company B with unencumbered legal title, the Appellants lacked the necessary proprietary base.

Implications: The decision clarifies, at the highest level, that knowing receipt is contingent on the survival of the claimant’s equitable interest. It harmonises personal and proprietary remedies and limits the tort’s reach where foreign or domestic rules confer indefeasible title. No new cause of action was created, but significant guidance is provided for cross-border trust litigation and land-registration contexts.